Single parents will be severely hit by the universal credit, which is gradually being rolled out, losing on average £710 a year.
Photograph: Christopher Furlong/Getty Images

Seven years of cuts to tax credits and universal credit have hugely eroded their role in supposedly rewarding people for working, leaving many families thousands of pounds a year worse off, a study has concluded.

Ministers’ promises that the systems would benefit families for taking on more work had effectively been broken because of the cuts, according to the report by the Child Poverty Action Group (CPAG) and the Institute for Public Policy Research thinktank.

The study, titled Austerity Generation, details what it says are the huge numbers of families with children pushed into poverty due to cuts and freezes to benefits, as well as measures such as the new two-child limit for payments.

It calls for the chancellor, Philip Hammond, to tackle the issue in next month’s budget by restoring previous levels of universal credit work allowances, the amount of monthly income that can be earned without penalty. These were cut in April 2016.

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It also seeks a pension-style triple lock of the child benefit and child credit element of universal credit, ensuring it kept pace with prices and earnings. This alone, the report argues, would keep 600,000 children out of poverty.

Introduced in 2003, working tax credits are intended to top up low earnings. It is among a series of benefits replaced by universal credit, which is gradually being rolled out nationally and is intended to incentivise working.

But, according to the report, cuts have eroded much of this effect for families. It calculates that a couple with two young children, one working full-time and the other part-time on the national living wage, will lose more than £1,200 a year due to universal credit cuts.

Another example given is that of a single parent with two young children who starts work at 12 hours a week on the national living wage and will have an effective hourly wage of £4.18, as opposed to £5.01 before the cuts.

The authors detail the wider penalties for families due to the benefit cuts and other changes, saying those with four or more children will lose more than £4,000 a year overall, or £5,000 if they move to universal credit.

Single parents will be especially badly hit, the report said, with changes to universal credit leaving them on average £710 a year worse off. Parents of children with disabilities will also be disproportionately affected, it adds.

The report said: “The losses are alarming, and will damage the life chances of hundreds of thousands of children growing up under austerity.”

Overall, the study said, cuts to the existing benefit system since 2010 will push 700,000 children into poverty, after accounting for housing costs. The two-child limit for benefit payments alone will put 200,000 children in poverty once the system has been fully extended nationwide, the calculations suggested.

Cuts to the existing benefit system since 2010 will push 700,000 children into poverty

Alison Garnham, the chief executive of CPAG, said the report detailed a generation “whose childhoods and life chances will be scarred by a decade of political decisions to stop protecting their living standards”.

She said: “This is the choice that’s being made in our names. The promise of increased rewards from work made to families with children under the new universal credit benefit has been broken. The universal credit we see today is not the universal credit that was sold to everyone a few years ago.”

Given separate and much-reported problems with universal credit, such as the six-week delay for payments, the budget would be “an opportunity for the chancellor to mount a full-scale rescue mission” for the system, Garnham said.

She added: “If the government’s flagship anti-poverty measure ends up rolling out poverty then it’s hard not to see that as a colossal failure of public policy.

A spokeswoman for the Department of Work and Pensions said: “We’re committed to supporting families and there are now 200,000 fewer children living in poverty than in 2010. This report assumes that people won’t take any steps to improve their lives, which we know is untrue. Unlike the old system universal credit rewards those working more hours. Evidence shows that claimants look to take on more hours than they did under jobseeker’s allowance, and for the first time they get personalised support to help them progress in work.”